By CCN: European Union regulators fine five major banks including JPMorgan – the biggest bank in the US – for taking part in spot foreign exchange (FX) trading cartels. The regulators found price fixing for all major currency areas including the US, Europe, and Australasia. In total, 11 currencies were included in the scam, including the most traded pairs for the Dollar, Euro, Pound, and the Yen.
Danish commissioner for competition policy at the EU, Margrethe Vestager, had the following to say:
Today we have fined Barclays, The Royal Bank of Scotland, Citigroup, JPMorgan and MUFG Bank and these cartel decisions send a clear message that the Commission will not tolerate collusive behaviour in any sector of the financial markets. The behaviour of these banks undermined the integrity of the sector at the expense of the European economy and consumers”.
In two distinct settlements, the Commission found evidence of collusion in separate groups code-named “The Three Way Banana Split” and “The Essex Express”. The humorous names relate to chatroom’s established by several professional traders from separate banks who knew each other in a personal capacity.
Traders created one chatroom called the “The Essex Express ‘n the Jimmy” because everyone except “James” lived in Essex county and had met on the train to London. The ease with which the city professionals from competing banks could relay sensitive information was all too easy to pass up.
The report reveals that customer orders, open positions, bid-ask prices, and planned trading activities were amongst the information passed along in the covert chats. The insider information allowed the unscrupulous traders to front-run positions and make huge profits with almost zero risks.
The five banks implicated in the scandal include Barclays, Royal Bank of Scotland, Citigroup, JPMorgan, and MUFG. A sixth party, UBS, was also involved in the price fixing, however, the Swiss Bank received full immunity from the Commission for revealing the existence of the cartels.
The chatroom discussions took place at various times between 2007 and 2011. This isn’t the first time regulators have punished major banks for foreign exchange collusion leading many to speculate just how effective these kinds of punishments are in a largely unregulated market.
Investors consider foreign exchange to be the largest and most liquid market in the world. According to a 2016 report by the Bank for International Settlements, currency flows average around $5 trillion a day. There is no central clearinghouse or international regulator for the foreign exchange market and most orders flow through the big banks. This central point of failure is often the reason for repeat offenses.
Such fines are likely a minuscule percentage of a banks total FX profits. For acknowledging their involvement in the cartels, all five banks were given a 10% leniency towards the totals which are outlined as followed by the Commission:
This article was edited by Samburaj Das.